The mechanics of establishing credit is simple – have one line of credit open for at least six months.
The hard part is getting that first line!
First, check your credit reports. You might have an established credit history but it's just not long enough. Use Annualcreditreport.com to get your report from Equifax, Experian, and TransUnion – make sure your accounts are being listed and you're getting credit for them.
Eight Ways to Get Your First Line of Credit
There are at least eight ways:
- Become an authorized user on another person's credit account – this is not always reported to credit bureaus so check with the issuer. You may heard this strategy called “piggybacking.”
- Get a credit card from your bank. If you have a bank account, go to the bank and try to get a card there. You have an established history with the bank, it'll be easier to get a credit card there with that history. You do not want a debit card, that will not establish credit because it's tied to your checking account.
- Get a secured or unsecured credit card in your name. Get a secured one from a well known brand, like the Capital One® Secured MasterCard® or the Citi® Secured MasterCard®.
- Get a credit card from a gas station or retailer, such as a department store, because they have lower qualification requirements.
- Get a credit card designed for college students, they often have lower qualification requirements.
- Get a loan, such as a student or auto, in your name. You can get a cosigner or co-applicant to help get it approved, but it will be reported on your report as long as your name is on the loan.
- Get a loan from a retail store for a purchase if they offer 0% financing. It counts as a loan. Don't use layaway for this though, Credit.com learned that no companies reported or planned to report layaway plans.
- As a last resort, join a credit union and get a secured loan. Confirm that the credit union will report it to the credit bureaus and that you can get a loan for a relatively small amount at a decent rate. At my first credit union, they offer a secured loan of up to 80% of your savings account balance at a rate of just a few percentage points. Not an ideal solution and should be used as a last resort.
If you can, try to get different lines of credit as well. The two categories are revolving, like credit cards, and installment, like a auto loan.
If you already have one and still get the dreaded “not enough credit history,” it's just a matter of waiting.